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Options as Investment Leverage: CNBC Explains

CNBC Explains
Thursday, 16 Jun 2011 | 11:30 AM ET
Puts, Shorts and Investment Leverage: CNBC Explains
In previous CNBC Explains videos, we've explained put options which, like call options, allow you to multiply gains you would make when shorting a stock. Salman Khan of the Khan Academy explains how put options can function as investment leverage and how they compare to shorting.
Call Options as Leverage: CNBC Explains
In previous videos, we've explained call options in detail. You learned that if the stock price goes up, call options allow you to make more profit per invested dollar, compared to simply buying a stock. By putting less money on the table to magnify profits, call options can have the same effect as investing with borrowed money, which is known as using leverage. Salman Khan of the Khan Academy explains.

In previous videos, we’ve explained call options in detail. You have learned that if the stock price goes up, call options allow you to make more profit per invested dollar, compared to simply buying a stock. By putting less money on the table to magnify profits, call options can have the same effect as investing with borrowed money, which is known as using leverage. Salman Khan of the Khan Academy explains how call options can be used as investment leverage and then looks at how put options compare to shorting a stock.

From this first video, you’ll understand:

  • How a call option gives an investor financial leverage
  • How gains and losses compare when buying a stock vs an option


From this second video, you'll understand:

  • How put options give an investor financial leverage if a stock goes down
  • How put options compare to shorting a stock

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